PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v.
CAROL ANN COX,
No. 07-4906
Party-in-Interest-Appellee,
and
MARK S. COX,
Defendant.
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Lacy H. Thornburg, District Judge.
(3:05-cr-00092-GCM)
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
CAROL ANN COX,
No. 08-4680
Party-in-Interest-Appellant,
and
MARK S. COX,
Defendant.
2 UNITED STATES v. COX
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, Senior District Judge.
(3:05-cr-00092-GCM-1)
Argued: May 13, 2009
Decided: August 5, 2009
Before TRAXLER, Chief Judge, GREGORY, Circuit Judge,
and Frederick P. STAMP, Jr., Senior United States District
Judge for the Northern District of West Virginia,
sitting by designation.
Reversed and remanded by published opinion. Chief Judge
Traxler wrote the opinion, in which Judge Gregory and Senior
Judge Stamp joined.
COUNSEL
ARGUED: William A. Brafford, OFFICE OF THE UNITED
STATES ATTORNEY, Charlotte, North Carolina, for the
United States. Amy Elizabeth Simpson, JAMES MCELROY
& DIEHL, PA, Charlotte, North Carolina, for Carol Ann Cox.
ON BRIEF: Gretchen C. F. Shappert, United States Attorney,
Charlotte, North Carolina, for the United States. Preston O.
Odom, JAMES MCELROY & DIEHL, PA, Charlotte, North
Carolina, for Carol Ann Cox.
UNITED STATES v. COX 3
OPINION
TRAXLER, Chief Judge:
Carol Cox filed a third-party petition asserting a claim to
the proceeds of a bank account seized by the government in
the criminal forfeiture proceedings against Mark Cox, Carol’s
ex-husband. The district court ruled in favor of Carol and sub-
sequently awarded her attorney’s fees under the Equal Access
to Justice Act ("EAJA"), 28 U.S.C.A. § 2412 (West 2006).
The government appeals, arguing that the district court erred
by awarding attorney’s fees to Carol. Because we agree that
Carol was not entitled to a fee award under EAJA, we reverse
the district court’s order and remand for further proceedings.1
I.
The government began investigating Mark, a chiropractor,
and others in late 2002; Mark became aware of the investiga-
tion in early 2003. The investigation initially focused on
health-care fraud, but later expanded to include bank fraud,
based on misrepresentations Mark made in connection with a
loan from Wachovia Bank. On April 8, 2005, Mark pleaded
guilty to charges of bank fraud, health-care fraud, and money
laundering. In his plea agreement, Mark agreed to forfeit as
direct proceeds of the bank fraud more than $1,000,000 con-
tained in an account at BB&T. See 18 U.S.C.A.
§ 982(a)(2)(A) (West 2000) (authorizing criminal forfeiture of
proceeds from the commission of bank fraud). On April 11,
1
Carol filed a cross-appeal (No. 08-4680) challenging the district court’s
order of June 10, 2008, which denied her petition for relief from a writ of
execution of the restitution judgment. The government has abandoned its
opposition to Carol’s claim and has conceded that Carol is entitled to the
funds at issue in that order. We therefore reverse the district court’s order
of June 10, 2008, and direct the government and the district court on
remand to take whatever actions are necessary to release the funds at issue
to Carol.
4 UNITED STATES v. COX
2005, the government obtained a preliminary order of forfei-
ture and executed that order by seizing the BB&T account.
While the investigation of Mark was proceeding, the
Coxes’ marriage began faltering. Carol hired an attorney in
December 2003, and the Coxes formally separated in January
2004. In March 2004, the Coxes entered into a "collaborative
law agreement" that required them to submit to binding arbi-
tration if they could not reach agreement on property distribu-
tion and other issues. They failed to reach an agreement, and
the matter proceeded to arbitration.
On February 24, 2005, the arbitrator issued a decision
awarding Carol $812,000 originally contained in a Wachovia
money market account but later moved into an account at
First Charter Bank. Two weeks after the arbitration award was
issued, Mark transferred the balance of the First Charter
account into the BB&T account. The proceeds from the origi-
nal Wachovia account were thus seized by the government
when it executed the preliminary order of forfeiture on the
BB&T account.
Carol filed a petition asserting her interest in the proceeds
of the BB&T account. The district court ruled in her favor,
concluding that Carol qualified as a bona fide purchaser for
value of the funds first contained in the Wachovia account
and seized from the BB&T account. The government
appealed but later withdrew its notice of appeal. Carol there-
after sought an award of attorneys fees from the government
under EAJA, arguing that the government’s litigation position
was not substantially justified. The district court agreed and
awarded Carol fees in the amount of $40,000. This appeal fol-
lowed.
II.
In civil actions brought by or against the government,
EAJA authorizes an award of attorney’s fees to the prevailing
UNITED STATES v. COX 5
party unless the government’s position in the course of the
proceedings was "substantially justified." 28 U.S.C.A.
§ 2412(d)(1)(A). The government’s position is substantially
justified if it is "‘justified in substance or in the main’—that
is, justified to a degree that could satisfy a reasonable person."
Pierce v. Underwood, 487 U.S. 552, 565 (1988). The govern-
ment’s position must be "more than merely undeserving of
sanctions for frivolousness," id. at 566, and must instead have
a "‘reasonable basis both in law and fact,’" id. at 565. The
question, then, is whether the government was substantially
justified in opposing Carol’s claim to the funds in the BB&T
account.
A third party may recover assets otherwise subject to crimi-
nal forfeiture by showing that she was "a bona fide purchaser
for value of the right, title, or interest in the property and was
at the time of purchase reasonably without cause to believe
that the property was subject to forfeiture under this section."
21 U.S.C.A. § 853(n)(6)(B) (West 1999).2 The government’s
position during the forfeiture proceedings was that Carol
could not be viewed as a purchaser for value of the BB&T
funds, and that, in any event, she had reason to believe that
the assets were subject to forfeiture, both of which would pre-
clude her from qualifying as a bona fide purchaser within the
meaning of the statute.
As used in the forfeiture statute, "‘bona fide purchaser for
value’ must be construed liberally to include all persons who
give value to the defendant in an arms’-length transaction
with the expectation that they would receive equivalent value
in return." United States v. Reckmeyer, 836 F.2d 200, 208 (4th
Cir. 1987). In its ruling awarding Carol the BB&T funds, the
district court concluded that Carol gave value with the expec-
tation of receiving equivalent value in return when she and
2
Section 982, which authorizes criminal forfeiture in cases of bank
fraud, incorporates the procedures set forth in § 853. See 18 U.S.C.A.
§ 982(b)(1).
6 UNITED STATES v. COX
Mark entered into the collaborative law agreement obligating
them to go to binding arbitration if they were unable to other-
wise resolve the equitable distribution issues. According to
the district court, Carol, through that agreement, gave up her
claims to any marital property awarded to Mark, just as Mark
gave up his claim to any property awarded to Carol. And
while the agreement did not include specific bargaining over
the Wachovia account, the district court did not believe that
was necessary for Carol to be considered a bona fide pur-
chaser of the Wachovia account.
To qualify as a bona fide purchaser under § 853, a peti-
tioner must have given value for the property subject to forfei-
ture. See 21 U.S.C.A. § 853(n)(2) ("Any person . . . asserting
a legal interest in property which has been ordered forfeited
. . . may . . . petition the court for a hearing to adjudicate the
validity of his alleged interest in the property." (emphasis
added)); United States v. Schecter, 251 F.3d 490, 496 (4th
Cir. 2001) ("Section 853 requires more than a showing of a
legal interest in the debtor’s property. It requires that the
interest exist in the property subject to forfeiture." (internal
quotation marks omitted)). In Reckmeyer, we recognized that
general creditors, who cannot claim a specific interest in any
particular asset, may nonetheless qualify as bona fide pur-
chasers for value in cases where the criminal defendant’s
entire estate has been forfeited to the government. See Schec-
ter, 251 F.3d at 496 ("[I]n Reckmeyer, the claimants were
only able to recover because the defendant’s entire estate had
been forfeited, which in practical terms meant that petitioners’
interests necessarily lay within that estate." (internal quotation
marks and alterations omitted)). The forfeiture in this case
involved substantially less than Mark’s entire estate, and the
collaborative law agreement simply obligated the Coxes to
submit their property issues to binding arbitration and gave
neither party a specific interest in any particular asset. The
government thus had a reasonable basis in fact and law to
contend that the agreement at most made Carol a general
UNITED STATES v. COX 7
creditor but was insufficient to make her a bona fide pur-
chaser for value under § 853. See id. at 495-96.
And even assuming that the arbitration award itself gave
Carol the specific interest in the specific asset as required by
§ 853, it was not unreasonable for the government to question
Carol’s knowledge of the possibility of forfeiture. Carol knew
well before the arbitration proceedings began that Mark was
under investigation. And more specifically, approximately a
year before the arbitration award, Mark’s attorney wrote a let-
ter to Carol’s attorney explaining in a fair amount of detail
that the assets to be equitably distributed as part of the divorce
were subject to forfeiture and seizure. These facts provided
the government with a factual and legal basis for arguing that
Carol was not a bona fide purchaser for value because she
reasonably had "cause to believe that the property was subject
to forfeiture." 21 U.S.C.A. § 853(n)(6)(B). Whether or not
these facts were enough to establish as a matter of law that
Carol had knowledge,3 the facts were sufficient to provide the
government with a reasonable basis for challenging Carol’s
claim to the funds. See Pierce, 487 U.S. at 566 n.2 ("[A] posi-
tion can be justified even though it is not correct. . . .");
United States v. B&M Used Cars, 860 F.2d 121, 124 (4th Cir.
1988) ("The fact that the government failed to achieve forfei-
ture of B&M raises no presumption that its position was not
substantially justified.").
In our view, then, the government’s litigation position with
regard to the legal question of whether Carol was a bona fide
purchaser for value was substantially justified. This conclu-
sion, however, does not end our inquiry, because EAJA
3
The district court found it important that Carol knew Mark was being
investigated for health-care fraud, but did not know he was being investi-
gated for bank fraud, the charge that ultimately led to the forfeiture of the
BB&T account. We question the legal significance of this fact, given that
the statute focuses only on whether the claimant has "cause to believe that
the property was subject to forfeiture," 21 U.S.C.A. § 853(n)(6), not
whether the claimant knew the particular statutory basis for the forfeiture.
8 UNITED STATES v. COX
requires us to consider the totality of the government’s con-
duct, including the reasonableness of the government’s
actions in bringing about the litigation. See Roanoke River
Basin Ass’n v. Hudson, 991 F.2d 132, 138 (4th Cir. 1993)
("[I]t is clear that [through EAJA,] Congress intended to
address governmental misconduct whether that conduct pre-
ceded litigation, compelling a private party to take legal
action, or occurred in the context of an ongoing case through
prosecution or defense of unreasonable positions.").
In this case, the district court’s determination that the gov-
ernment’s position was not substantially justified was based
more on the court’s disdain for the government’s tactics in
even seeking forfeiture of the BB&T account than its dis-
agreement with the merits of the government’s legal argu-
ments. The district court believed that the government should
have informed Carol that it was investigating Mark for bank
fraud and should have apprised her of the status of the plea
negotiations, and the court faulted the government for seeking
forfeiture of the BB&T account when it could have instead
sought forfeiture of assets that had been assigned to Mark in
the arbitration award. The district court noted that Mark’s
transfer of the contested funds from the First Charter account
into the BB&T account violated a state-issued injunction and
that Mark moved the money into the BB&T account in an
attempt to use funds awarded to Carol to satisfy his forfeiture
obligation. The district court concluded that the government
"turned a blind eye" to that misconduct and became culpable
itself by seizing the account into which the funds had been
transferred. In our view, however, the district court’s criti-
cisms of the government’s approach to this case fail to take
into account the manner in which forfeiture proceedings oper-
ate or the government’s obligations during the course of a
criminal investigation.
Preliminarily, we note that the government has no obliga-
tion to discuss ongoing criminal investigations but instead is
required to maintain the secrecy of grand jury proceedings,
UNITED STATES v. COX 9
see generally Fed. R. Crim. P. 6(e)(2)(B)(vi), and we are
aware of no legal authority that would require (or even
encourage) the government to apprise third parties of the sta-
tus of plea negotiations. The government’s failure to inform
Carol of the bank fraud investigation or its status therefore
cannot be viewed as improper.
Moreover, the district court’s analysis fails to recognize
that the function of ancillary forfeiture proceedings is to
resolve third-party claims of ownership like those asserted in
this case by Carol. As we explained in United States v.
McHan, 345 F.3d 262 (4th Cir. 2003), under § 853, title to the
proceeds of criminal conduct vests with the government at the
time the criminal act is committed. See id. at 268; see also 21
U.S.C.A. § 853(c). Third parties claiming an interest in the
property have no right to intervene in the criminal proceeding
or to receive notice of the forfeiture proceedings before the
entry of a preliminary order of forfeiture. See 21 U.S.C.A.
§ 853(k); McHan, 345 F.3d at 269. Notice of the preliminary
order of forfeiture is provided after conviction or guilty plea,
at which time third parties may file a petition under § 853(n)
asserting their claims to the property. See 21 U.S.C.A.
§ 853(n); Fed. R. Crim. P. 32.2(c). "The petition authorized
by § 853(n) is the exclusive avenue through which a third
party may protect his interest in property that has been subject
to a forfeiture order." McHan, 345 F.3d at 269 (emphasis
added).
The actions of the government that were criticized by the
district court thus were actions that were largely compelled by
statute and rule. The government’s investigation indicated that
the funds in the BB&T account were connected to the bank
fraud, and Mark stipulated in his plea agreement that a portion
of the funds in the BB&T account were direct proceeds of the
bank fraud to which he pleaded guilty. The preliminary order
of forfeiture was thus properly entered, and the government
properly seized the BB&T account at that time. Even if the
government at that point knew that Carol claimed an interest
10 UNITED STATES v. COX
specifically in the BB&T account, the government’s actions
were entirely proper — Rule 32.2 requires the issuance of a
preliminary order of forfeiture when the proper nexus is
shown, whether or not a third party claims an interest in the
property, see Fed. R. Crim. P. 32.2(b)(2) ("If the court finds
that property is subject to forfeiture, it must promptly enter a
preliminary order of forfeiture . . . without regard to any third
party’s interest in all or part of it. Determining whether a third
party has such an interest must be deferred until any third
party files a claim in an ancillary proceeding under Rule
32.2(c)." (emphasis added)), and § 853 specifically contem-
plates that the government will preliminarily seize property in
which others are known to claim an interest, see 21 U.S.C.A.
§ 853(n)(1) (authorizing the government to provide direct
notice of the preliminary order of forfeiture "to any person
known to have alleged an interest in the property that is the
subject of the order of forfeiture" (emphasis added)).
The arbitration award assigning the Wachovia funds to
Carol simply did not conclusively resolve the ownership ques-
tion, as the district court seemed to conclude, and the govern-
ment cannot be faulted for following the procedure
established to resolve third-party ownership claims. And
while other assets may have been available for forfeiture, the
government’s investigation traced the proceeds of the bank
fraud to the BB&T account. The contents of the BB&T
account thus amounted to direct proceeds of the crime to
which Mark pleaded guilty, and the government did not act
improperly by seizing the account and waiting for the ancil-
lary proceedings to determine whether Carol had a superior
claim to the proceeds.
A district court has broad discretion when determining
whether fees should be awarded under EAJA, and the court’s
decision to award fees is thus entitled to deference. See
Pierce, 487 U.S. at 562-63. The degree of deference required
under Pierce, however, is "considerably short of a simple,
accept-on-faith, rubber-stamping of district court decisions on
UNITED STATES v. COX 11
this issue." United States v. Paisley, 957 F.2d 1161, 1166 (4th
Cir. 1992). In this case, the government’s position on the legal
merits of Carol’s bona-fide-purchaser claim had a reasonable
basis in fact and law, and the actions that the district court
believed warranted a fee award were completely consistent
with (if not compelled by) the forfeiture statute and governing
rules. We are therefore constrained to conclude that the dis-
trict court abused its discretion by concluding that the govern-
ment’s conduct leading up to and during litigation of Carol’s
interest in the BB&T account was not substantially justified.
See Roanoke River Basin Ass’n, 991 F.3d at 139 ("[W]hen
determining whether the government’s position in a case is
substantially justified, we look beyond the issue on which the
petitioner prevailed to determine, from the totality of circum-
stances, whether the government acted reasonably in causing
the litigation or in taking a stance during the litigation. In
doing so, it is appropriate to consider the reasonable overall
objectives of the government and the extent to which the
alleged governmental misconduct departed from them.").
III.
Accordingly, for the foregoing reasons, we hereby reverse
the district court’s order awarding Carol fees under EAJA,
and we remand for further proceedings consistent with this
opinion.
REVERSED AND REMANDED